Financial Data and Key Metrics Changes - Adjusted EBITDA for Q2 2022 was $29 million compared to negative $31 million in the prior quarter, while adjusted EBITDAR was $54 million compared to $31 million in the prior quarter [37] - Revenues for Q2 2022 were $413 million, up from $318 million in the prior quarter, with revenues excluding reimbursable items increasing to $385 million from $291 million [38] - Contract drilling expense for Q2 2022 was $362 million compared to $331 million in the prior quarter, with adjusted EBITDA guidance for the second half of 2022 expected to be $135 million to $155 million [40][51] Business Line Data and Key Metrics Changes - The return of four reactivated floaters is expected to significantly improve financial results in future periods, with the reactivation costs for these rigs averaging $40 million to $45 million per rig [32][33] - Jackup revenues increased primarily due to more operating days for VALARIS 249, while floater revenues increased due to VALARIS DPS-1 and DS-16 returning to work [38][40] - Active utilization for jackups has increased to approximately 90%, with notable contract awards including a four-year contract with Renishaw Petroleum for VALARIS 115 [17] Market Data and Key Metrics Changes - The offshore drilling market is experiencing increased contracting and tendering activity, with rig years awarded for benign environment floaters approximately 75% higher than the previous 12 months [14] - Spot Brent crude prices have been above $100 per barrel for most of the past five months, with medium- and longer-term commodity prices remaining constructive for investment in offshore projects [12] - The jackup rig market has seen a notable increase in activity, primarily driven by demand in the Middle East, with rig years of open demand at tender or pretender stage increasing by approximately 10% and 30% compared to six months and twelve months ago, respectively [16] Company Strategy and Development Direction - The company aims to maximize shareholder value during the industry upcycle by focusing on safe, reliable, and efficient operations, and has implemented additional onboarding programs for new personnel [6][10] - The strategy includes reactivating high-quality stacked rigs for long-term contracts at attractive economics, with a disciplined approach to returning additional stacked rigs to the active fleet [20][21] - The company is also focused on creating shareholder value through potential M&A or asset transactions while maintaining an industry-leading cost structure and strong balance sheet [66] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the fundamental outlook for the offshore drilling industry, citing a tight supply picture exacerbated by geopolitical instability and increased focus on energy security [12] - The company anticipates double-digit growth in offshore upstream CapEx over the next couple of years, with an increase in project sanctioning expected in 2022 and 2023 [13] - Management acknowledges potential volatility in earnings over the next several quarters due to timing of reactivation costs and market conditions for harsh environment jack-up rigs [61] Other Important Information - The company recorded a gain on asset sales of $135 million during the quarter, primarily related to the sale of jackups VALARIS 113 and 114 [23] - ARO Drilling, a joint venture with Saudi Aramco, is expected to contribute significantly to the company's value, with newbuild rigs scheduled for delivery in the first half of next year [24][25] - The company expects to receive approximately $90 million in upfront payments from customers related to capital reimbursements and mobilization fees over the remainder of the year [58] Q&A Session Summary Question: Discussion on rigs rolling off contracts in spring 2023 - Management indicated that DS-15 in Brazil has options for extension, and there are strong opportunities in West Africa, with a focus on finding the right long-term contracts [73][74] Question: Reactivation lead times and long-term contracts for 2024 - Management confirmed discussions about term contracts that include reactivation, with planning for approximately 12 months for the DS-17 reactivation due to supply chain challenges [78] Question: Remaining stacked assets and newbuilds - Management stated that the priority is to utilize the active fleet before considering stacked rigs and newbuilds, with discussions ongoing regarding potential contracts for the newbuilds [82] Question: Demand for longer contract terms and direct negotiations - Management noted an increase in demand for direct negotiations, particularly in less regulated environments like the Gulf of Mexico, while contract durations remain cautious [90][92]

[PART I - FINANCIAL INFORMATION](index=7&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) This section presents Valaris Limited's unaudited condensed consolidated financial statements for Q2 2022, detailing operations, balance sheets, cash flows, and key events [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The company reported **$413.3 million** in Q2 2022 operating revenues and **$111.6 million** net income, significantly impacted by asset sales and the VALARIS DS-11 contract termination Q2 2022 (Successor) Statement of Operations Highlights (in millions) | Metric | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | **Operating Revenues** | $413.3 | $731.7 | | Contract drilling expense | $361.8 | $693.1 | | Loss on impairment | $34.5 | $34.5 | | Operating Income (Loss) | $(15.6) | $(65.5) | | Other Income, net | $149.7 | $158.0 | | **Net Income (Loss) Attributable to Valaris** | $111.6 | $73.0 | | **Diluted EPS** | $1.48 | $0.97 | - The company received a **$51.0 million** early termination fee for the VALARIS DS-11 contract, which was included in revenues for the three and six months ended June 30, 2022[42](index=42&type=chunk) - A pre-tax, non-cash loss on impairment of **$34.5 million** was recorded in Q2 2022 related to capital upgrades for the terminated VALARIS DS-11 contract[43](index=43&type=chunk)[75](index=75&type=chunk) [Condensed Consolidated Balance Sheets](index=12&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2022, Valaris reported total assets of **$2.76 billion**, total liabilities of **$1.62 billion**, and total equity of **$1.14 billion**, reflecting growth from year-end 2021 Balance Sheet Summary (in millions) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $1,280.9 | $1,206.6 | | Cash and cash equivalents | $553.5 | $608.7 | | **Property and equipment, net** | $931.7 | $890.9 | | **Total Assets** | **$2,760.8** | **$2,609.2** | | **Total Current Liabilities** | $547.1 | $422.0 | | **Long-Term Debt** | $545.7 | $545.3 | | **Total Liabilities** | **$1,620.4** | **$1,548.4** | | **Total Equity** | **$1,140.4** | **$1,060.8** | [Condensed Consolidated Statements of Cash Flows](index=13&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For H1 2022, net cash used in operations was **$114.1 million**, while investing activities provided **$46.9 million**, resulting in a **$67.3 million** decrease in cash and restricted cash Cash Flow Summary for Six Months Ended June 30, 2022 (Successor, in millions) | Cash Flow Activity | Amount | | :--- | :--- | | Net cash used in operating activities | $(114.1) | | Net cash provided by investing activities | $46.9 | | Net cash used in financing activities | $(0.2) | | **Decrease in Cash and Restricted Cash** | **$(67.3)** | - Investing activities were positively impacted by **$146.5 million** in net proceeds from the disposition of assets, while being offset by **$99.6 million** in additions to property and equipment[26](index=26&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide critical context to the financial statements, detailing the VALARIS DS-11 termination fee, ARO joint venture, asset sales, debt, contingencies, segment performance, and customer concentration - The company's 50/50 unconsolidated joint venture, ARO, owns seven jackup rigs and has ordered two newbuilds. Valaris leases an additional seven rigs to ARO. ARO's net income was **$9.9 million** for Q2 2022[58](index=58&type=chunk)[59](index=59&type=chunk)[62](index=62&type=chunk) - In Q2 2022, the company sold three rigs (VALARIS 113, 114, and 36) for a combined pre-tax gain of **$128.5 million** and received an additional **$7.0 million** on a prior-year sale[81](index=81&type=chunk) - The company has a potential obligation to contribute up to **$1.25 billion** to ARO to fund a 20-rig newbuild program if other financing is unavailable[113](index=113&type=chunk) Customer Revenue Concentration (Six Months Ended June 30, 2022) | Customer | Percentage of Revenue | | :--- | :--- | | BP plc ("BP") | 14% | | Equinor ASA ("Equinor") | 12% | | Other | 74% | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=39&type=section&id=Item%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) Management discusses the company's performance, industry outlook, and financial condition, highlighting improved offshore drilling prospects, a **$2.3 billion** backlog, and strong liquidity [Business Environment and Outlook](index=40&type=section&id=Business%20Environment%20and%20Outlook) The offshore drilling outlook has improved with increased contracting, though geopolitical and inflationary risks persist, with the company's backlog at **$2.3 billion** and rising utilization and day rates - Contract backlog was **$2.3 billion** as of July 28, 2022, a decrease from **$2.4 billion** as of February 21, 2022, primarily due to the termination of the VALARIS DS-11 contract[157](index=157&type=chunk) - ARO's backlog was stable at **$1.5 billion** as of July 28, 2022[160](index=160&type=chunk) Q2 2022 vs Q1 2022 Segment Performance | Segment | Q2 2022 Utilization | Q1 2022 Utilization | Q2 2022 Avg. Day Rate | Q1 2022 Avg. Day Rate | | :--- | :--- | :--- | :--- | :--- | | **Floaters** | 31% | 25% | $213,000 | $197,000 | | **Jackups** | 67% | 63% | $94,000 | $89,000 | [Results of Operations](index=44&type=section&id=Results%20of%20Operations) Q2 2022 revenue increased **30%** to **$413.3 million** from Q1, driven by the VALARIS DS-11 termination fee and higher operating days, while contract drilling expenses also rose Q2 2022 vs Q1 2022 (Successor, in millions) | Metric | Q2 2022 | Q1 2022 | | :--- | :--- | :--- | | **Revenues** | $413.3 | $318.4 | | Contract drilling expense | $361.8 | $331.3 | | Operating loss | $(15.6) | $(49.9) | | **Net income (loss) attributable to Valaris** | $111.6 | $(38.6) | - Floater revenue for Q2 2022 increased by **$88.4 million** (**89%**) compared to Q1 2022, driven by the **$51.0 million** termination fee for VALARIS DS-11 and a **$26.0 million** increase from more operating days[201](index=201&type=chunk) - Other income, net, increased significantly in Q2 2022 due to a **$135.5 million** gain on the sale of three rigs (VALARIS 113, 114, 36) and additional proceeds from a prior sale[186](index=186&type=chunk)[220](index=220&type=chunk) [Liquidity and Capital Resources](index=54&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with **$553.5 million** in cash and no debt maturities until 2028, projecting **$200-$210 million** in 2022 capital expenditures and holding options for two newbuild drillships - As of June 30, 2022, the company had **$553.5 million** in cash and cash equivalents and no debt principal payments due until 2028[233](index=233&type=chunk) - Full-year 2022 capital expenditures are expected to be approximately **$200 to $210 million**[238](index=238&type=chunk) - The company has options to take delivery of two drillships, VALARIS DS-13 and VALARIS DS-14, on or before December 31, 2023[236](index=236&type=chunk) - The company has a potential obligation to fund its joint venture, ARO, for its newbuild program, with a maximum aggregate contribution of **$1.25 billion** if third-party financing is not secured[248](index=248&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=60&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces interest rate risk on fixed-rate debt and LIBOR-based notes, with a hypothetical **1%** LIBOR decrease impacting interest income by **$4.4 million**, and unhedged foreign currency risk - The company's outstanding debt consists of **$550.0 million** in fixed-rate First Lien Notes, exposing it to fair value changes from market interest rate fluctuations[262](index=262&type=chunk) - Long-term notes receivable from ARO bear interest based on LIBOR. A hypothetical **1%** decrease in LIBOR would reduce interest income by approximately **$4.4 million** annually[263](index=263&type=chunk) - The company is exposed to unhedged foreign currency risk from operations conducted in currencies other than the U.S. dollar[264](index=264&type=chunk) [Controls and Procedures](index=61&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal controls over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[269](index=269&type=chunk) - There were no material changes in internal controls over financial reporting during the second quarter of 2022[270](index=270&type=chunk) [PART II - OTHER INFORMATION](index=62&type=section&id=PART%20II%20OTHER%20INFORMATION) [Legal Proceedings](index=62&type=section&id=Item%201.%20Legal%20Proceedings) The company is contesting fines for fluid spills in Brazil and is involved in other legal matters, increasing its accrual for certain claims by approximately **$25.0 million** as of June 30, 2022 - The company is contesting fines assessed by Brazilian authorities for drilling fluid spills between 2008 and 2019 and has a **$0.5 million** liability accrued for these matters[273](index=273&type=chunk) - The company increased its accrual for certain other legal matters by approximately **$25.0 million** as of June 30, 2022, to reflect changes in the projected value of claims[274](index=274&type=chunk)[115](index=115&type=chunk) [Risk Factors](index=62&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the comprehensive discussion of business risks detailed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - The report refers to the 'Risk Factors' section of the Annual Report on Form 10-K for the year ended December 31, 2021, for a comprehensive discussion of business risks[275](index=275&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=63&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2022, the company withheld **2,834** common shares to satisfy tax obligations on vesting employee share awards, not as part of a stock buyback program - A total of **2,834** shares were withheld during Q2 2022 to satisfy tax obligations on vesting share awards, not as part of a share repurchase program[276](index=276&type=chunk)[278](index=278&type=chunk) [Exhibits](index=63&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including supplemental indentures, executive compensation plans, and certifications - Lists exhibits filed with the report, such as a Third Supplemental Indenture, an Amended Executive Severance Plan, and CEO/CFO certifications[278](index=278&type=chunk)

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q1 2022 was negative $31 million compared to positive $3 million in the prior quarter, while adjusted EBITDAR was $31 million compared to $40 million in the prior quarter [41] - Revenues for Q1 2022 were $318 million, up from $306 million in the prior quarter, with revenues excluding reimbursable items increasing to $291 million from $283 million [41] - Contract drilling expense for Q1 2022 was $331 million compared to $286 million in the prior quarter, with reactivation costs increasing to $62 million from $37 million [42][43] Business Line Data and Key Metrics Changes - In the jackup segment, new contracts commenced for Valaris 249, 117, and 114, contributing to higher utilization [41] - The Other segment saw revenue increases primarily due to higher day rates for managed rigs, Mad Dog and Thunder Horse, which received contract extensions [41] - The floater segment experienced revenue declines mainly due to Valaris DPS 5 being out of service for a survey [42] Market Data and Key Metrics Changes - Demand for hydrocarbons is expected to exceed 2019 levels by early 2023, with offshore upstream CapEx projected to see double-digit growth over the next few years [12][14] - Active utilization for benign environment jack-ups has increased to approximately 85%, with pricing improving [19] - The company anticipates Brazil to be a significant driver of offshore demand, with Petrobras seeking to double production by 2030 [17][18] Company Strategy and Development Direction - The company aims to actively manage its fleet and contracting activities, having increased its contract backlog to over $2.4 billion from just over $1 billion at the beginning of 2021 [21] - The strategy includes reactivating high-quality stacked rigs for long-term contracts at attractive economics, while maintaining a disciplined approach to future reactivations [22][32] - The company plans to assess its fleet for retirement and divestiture candidates, acting opportunistically to divest assets if economically sensible [32][60] Management's Comments on Operating Environment and Future Outlook - Management noted that financial results are expected to improve significantly as reactivation projects are completed and rigs commence long-term contracts [32][56] - The company retains significant operational leverage to the improving market through its high-quality stacked fleet [32] - Management expressed confidence in capitalizing on opportunities during the industry upcycle, focusing on maximizing earnings and free cash flow [33][59] Other Important Information - The company reported a strong balance sheet with cash and cash equivalents of $578 million and only $550 million in senior secured notes due in 2028 [58] - ARO Drilling, a joint venture with Saudi Aramco, is expected to contribute significantly to the company's future earnings, with a backlog of approximately $1 billion [29][57] Q&A Session Summary Question: Regarding debt retirement and asset monetization - Management indicated that while there are reinvestment rights associated with the recent asset sale, there is a non-call period for the debt that ends in April next year, and they are focused on maintaining liquidity while exploring investment opportunities [64] Question: Interest from international oil companies (IOCs) in Brazil - Management noted strong interest from IOCs in Brazil, with Petrobras aiming to double production by 2030, which is expected to drive incremental demand for rigs [66]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to__________ Commission File Number 1-8097 Valaris Limited (Exact name of registrant as specified in its charter) Indicate by check mark whether th ...

Valaris Limited (NYSE:VAL) Q4 2021 Earnings Conference Call February 22, 2022 10:00 AM ET Company Participants Tim Richardson - Director, Investor Relations Anton Dibowitz - President and Chief Executive Officer Darin Gibbins - Interim Chief Financial Officer and Vice President, Investor Relations and Treasurer Conference Call Participants Greg Lewis - BTIG Fredrik Stene - Clarksons Operator Good day, everyone and welcome to Valaris’ Fourth Quarter 2021 Results Conference Call. As a reminder, this call is b ...

PART I [Business](index=8&type=section&id=Item%201.%20Business) Valaris is a global offshore drilling contractor operating a large rig fleet after emerging from bankruptcy in 2021 - Valaris is a leading global provider of offshore contract drilling services, owning a fleet of **56 rigs** and holding a 50% equity interest in ARO, which owns an additional seven rigs[18](index=18&type=chunk) - The company provides drilling services on a day rate contract basis, where it supplies the rig and crew, while customers bear the costs and risks of well construction[20](index=20&type=chunk) - On April 30, 2021, Valaris successfully completed its financial restructuring and emerged from Chapter 11 bankruptcy, eliminating **$7.1 billion of debt** and securing a **$520 million capital injection** through new First Lien Notes[27](index=27&type=chunk) - The business consists of four operating segments: Floaters (drillships and semisubmersibles), Jackups, ARO (50/50 joint venture with Saudi Aramco), and Other (management services)[29](index=29&type=chunk) Major Customer Revenue Concentration (2021) | Period | Top 5 Customers' Revenue Share | BP's Revenue Share | | :--- | :--- | :--- | | **Successor (8 mos ended 12/31/21)** | 42% | 11% | | **Predecessor (4 mos ended 4/30/21)** | 45% | 14% | - The offshore drilling industry is highly competitive, with contracts typically awarded based on competitive bids where price, quality of service, safety performance, and equipment suitability are key factors[48](index=48&type=chunk) - Operations are subject to extensive governmental regulation and environmental laws, including those from the Bureau of Safety and Environmental Enforcement (BSEE) and emerging rules related to climate change and greenhouse gas emissions[49](index=49&type=chunk)[54](index=54&type=chunk)[58](index=58&type=chunk) [Risk Factors](index=18&type=section&id=Item%201A.%20Risk%20Factors) The company faces substantial risks from market volatility, contract uncertainties, post-bankruptcy challenges, and extensive international regulations - **Business & Market Risks:** The company's financial condition is adversely impacted by the COVID-19 pandemic, high dependence on volatile oil and gas prices, and the highly competitive and cyclical nature of the offshore drilling industry[71](index=71&type=chunk)[76](index=76&type=chunk)[82](index=82&type=chunk)[86](index=86&type=chunk) - **Contractual Risks:** The current contract backlog may not be fully realized due to potential rig downtime, early terminations, or customer renegotiations[89](index=89&type=chunk)[90](index=90&type=chunk)[98](index=98&type=chunk) - **Financial & Post-Bankruptcy Risks:** Having emerged from bankruptcy may affect business relationships and access to financing, and historical financial information is not indicative of future performance due to fresh start accounting[140](index=140&type=chunk)[141](index=141&type=chunk)[145](index=145&type=chunk) - **ESG Risks:** Increasing regulation of greenhouse gases and heightened stakeholder scrutiny of ESG practices could negatively impact demand for services and increase operational costs[147](index=147&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) - **Regulatory & Legal Risks:** The company must comply with complex anti-bribery statutes, environmental laws, and tax regulations across numerous jurisdictions, with non-compliance potentially leading to significant fines[154](index=154&type=chunk)[157](index=157&type=chunk)[160](index=160&type=chunk) - **International Operations Risks:** Non-U.S. operations, which constitute the majority of revenues (**87% in the Successor period**), are subject to geopolitical instability, currency fluctuations, and complex local laws[174](index=174&type=chunk)[176](index=176&type=chunk) [Unresolved Staff Comments](index=46&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved comments from the staff of the Securities and Exchange Commission - None[192](index=192&type=chunk) [Properties](index=47&type=section&id=Item%202.%20Properties) The company details its drilling fleet of 56 rigs and its owned and leased global office facilities Drilling Fleet Composition (as of Feb 21, 2022) | Rig Type | Count | | :--- | :--- | | **Floaters** | | | Drillship | 11 (plus 2 under construction option) | | Semisubmersible | 5 | | **Jackups** | 40 | | **Total Owned** | **56** | - The report provides a detailed table listing each rig's specifications, including name, type, year built, design, water/drilling depth, location, and current operational status[193](index=193&type=chunk)[194](index=194&type=chunk) - The company owns all rigs in its fleet and also manages drilling operations for two platform rigs owned by a third party[200](index=200&type=chunk) - Valaris leases office space globally and owns office and other facilities in Louisiana, Angola, and Brazil[200](index=200&type=chunk) [Legal Proceedings](index=50&type=section&id=Item%203.%20Legal%20Proceedings) The company is contesting notices in Brazil for past drilling fluid spills and has accrued a minor liability - The company is contesting notices of assessment in Brazil for spills from drilling rigs between 2008 and 2019[201](index=201&type=chunk) - A liability of **$0.4 million** related to the Brazilian environmental matters was recorded on the Consolidated Balance Sheet as of December 31, 2021[201](index=201&type=chunk) - Other legal proceedings are considered incidental to the business and are not expected to have a material adverse effect on financial results[202](index=202&type=chunk) [Mine Safety Disclosures](index=50&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[203](index=203&type=chunk) PART II [Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities](index=51&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Shareholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Post-bankruptcy, new shares and warrants trade on the NYSE, while dividends are restricted by debt covenants - As a result of the Chapter 11 cases, the Class A ordinary shares of Legacy Valaris were cancelled on the Effective Date, April 30, 2021[206](index=206&type=chunk) - The new Common Shares and Warrants of the successor company, Valaris Limited, are listed on the New York Stock Exchange under the ticker symbols **"VAL"** and **"VAL WS"**, respectively[207](index=207&type=chunk) - The company has not paid or declared any dividends on its Common Shares, and the Indenture governing its debt includes provisions that limit its ability to pay dividends[208](index=208&type=chunk) - Valaris has obtained an assurance from the Minister of Finance of Bermuda that certain taxes on profits, income, or capital gains will not be applicable to the company or its shares until March 31, 2035[210](index=210&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=52&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Financial results are not comparable year-over-year due to fresh start accounting post-bankruptcy emergence [Introduction](index=52&type=section&id=Introduction) The company emerged from bankruptcy with a new accounting basis, making post-emergence financials incomparable to prior periods - Upon emergence from Chapter 11, the company adopted fresh start accounting, resulting in a new basis of accounting, making financial statements after April 30, 2021 (Successor) not comparable to those prior (Predecessor)[219](index=219&type=chunk) - The industry environment improved in 2021, with Brent crude oil prices rising from **~$50 to nearly $80 per barrel**, leading to increased contracting and tendering activity[225](index=225&type=chunk) Contract Backlog Comparison (in millions) | Category | Feb 21, 2022 | Dec 31, 2020 | | :--- | :--- | :--- | | **Valaris Total** | **$2,443.9** | **$1,041.4** | | Floaters | $1,665.3 | $163.7 | | Jackups | $643.0 | $737.6 | | Other | $135.6 | $140.1 | | **ARO** | **$1,501.1** | **$347.5** | - The increase in Valaris's backlog by **$1.4 billion** is attributed to new contract awards and extensions, partially offset by revenue realization[231](index=231&type=chunk) [Business Environment](index=56&type=section&id=Business%20Environment) The offshore drilling market improved in 2021, with a significant recovery in the floater segment but a more modest recovery for jackups - **Floaters:** The floater segment backlog increased significantly from **$163.7 million** at YE 2020 to **$1.7 billion** as of Feb 21, 2022, with stable utilization and day rates[236](index=236&type=chunk)[237](index=237&type=chunk) - **Jackups:** The jackup segment backlog decreased from **$737.6 million** to **$643.0 million**, though utilization was stable and average day rates increased to approximately **$95,000** in 2021[242](index=242&type=chunk)[243](index=243&type=chunk) - The market continues to be oversupplied with rigs, but rig retirements are ongoing, with **134 benign environment floaters** and **161 jackups** retired since 2014[239](index=239&type=chunk)[245](index=245&type=chunk) [Results of Operations](index=57&type=section&id=Results%20of%20Operations) A non-GAAP combined 2021 analysis shows lower revenue but a significantly smaller operating loss compared to 2020 due to reduced expenses and impairments Consolidated Results of Operations (in millions) | | Combined 2021 (Non-GAAP) | 2020 (Predecessor) | | :--- | :--- | :--- | | **Revenues** | **$1,232.4** | **$1,427.2** | | Contract drilling expense | $1,072.5 | $1,470.4 | | Loss on impairment | $756.5 | $3,646.2 | | Depreciation | $225.7 | $540.8 | | General and administrative | $88.9 | $214.6 | | **Operating loss** | **($902.0)** | **($4,334.5)** | | **Net loss attributable to Valaris** | **($4,500.0)** | **($4,855.5)** | - Combined 2021 revenues declined by **$194.8 million (13.6%)** compared to 2020, primarily due to fewer operating days and prior-year contract termination fees[250](index=250&type=chunk) - Combined 2021 contract drilling expense decreased by **$397.9 million (27.1%)** compared to 2020, driven by lower costs for idle rigs, rigs sold, and cost control efforts[251](index=251&type=chunk) - A non-cash impairment loss of **$756.5 million** was recorded in the four-month 2021 Predecessor period, compared to a **$3.6 billion** impairment in 2020[252](index=252&type=chunk) - Other expense, net, for the combined 2021 period includes **$3.6 billion in reorganization items**, primarily related to the effects of emerging from bankruptcy and applying fresh start accounting[256](index=256&type=chunk)[318](index=318&type=chunk) [Liquidity and Capital Resources](index=74&type=section&id=Liquidity%20and%20Capital%20Resources) The company holds $608.7 million in cash with $550 million in debt and projects significant capital expenditures for rig upgrades in 2022 Liquidity Position (in millions) | | Dec 31, 2021 (Successor) | Dec 31, 2020 (Predecessor) | | :--- | :--- | :--- | | Cash and cash equivalents | $608.7 | $325.8 | | Available credit/DIP facility | $0.0 | $500.0 | | **Total liquidity** | **$608.7** | **$825.8** | - Capital expenditures for 2022 are expected to be approximately **$225 million to $250 million** for rig enhancement, reactivation, and upgrade projects[350](index=350&type=chunk) - The company's primary debt consists of **$550 million in First Lien Notes** due April 30, 2028, issued upon emergence from bankruptcy[354](index=354&type=chunk)[357](index=357&type=chunk) Contractual Obligations as of Dec 31, 2021 (in millions) | Category | Total | | :--- | :--- | | Principal payments on long-term debt | $550.0 | | Interest payments on long-term debt | $294.9 | | Operating leases | $27.4 | | **Total contractual obligations** | **$872.3** | - The company has a potential obligation to make capital contributions to its ARO joint venture to fund a 20-rig newbuild program, up to a maximum aggregate of **$1.25 billion**[371](index=371&type=chunk)[772](index=772&type=chunk) [Critical Accounting Policies and Estimates](index=85&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Key accounting judgments involve property depreciation, impairment assessments, income taxes, and pension benefit assumptions - Upon emergence from bankruptcy, the company changed its accounting policy for property and equipment, moving from a single asset approach to identifying and depreciating significant components of its drilling rigs separately[398](index=398&type=chunk)[400](index=400&type=chunk) - Impairment of Property and Equipment was a critical policy for the Predecessor, leading to non-cash impairment charges of **$756.5 million** in the first four months of 2021 and **$3.6 billion** in 2020[404](index=404&type=chunk)[405](index=405&type=chunk) - Accounting for income taxes is complex due to operations in numerous jurisdictions; as of December 31, 2021, the company had a **$320.2 million liability** for unrecognized tax benefits[412](index=412&type=chunk) - Pension and other postretirement benefit liabilities are based on significant actuarial assumptions; a one-percentage-point decrease in the assumed discount rate would increase liabilities by approximately **$109.1 million**[420](index=420&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=89&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable to the company - Not applicable[422](index=422&type=chunk) [Financial Statements and Supplementary Data](index=90&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited financial statements reflecting the post-bankruptcy new basis of accounting and an unqualified audit opinion - Management concluded that the company's internal control over financial reporting was **effective** as of December 31, 2021[425](index=425&type=chunk) - The independent auditor, KPMG LLP, issued an **unqualified opinion** on both the consolidated financial statements and the effectiveness of internal control over financial reporting[428](index=428&type=chunk)[429](index=429&type=chunk) - The financial statements are presented for two distinct periods: the Successor (post-bankruptcy) and the Predecessor (pre-bankruptcy), which are not comparable due to fresh start accounting[430](index=430&type=chunk)[465](index=465&type=chunk) Key Financial Statement Data (in millions) | | **Successor (8 mos ended 12/31/21)** | **Predecessor (4 mos ended 4/30/21)** | **Predecessor (Year ended 12/31/20)** | | :--- | :--- | :--- | :--- | | **Operating Revenues** | $835.0 | $397.4 | $1,427.2 | | **Operating Loss** | ($11.9) | ($890.1) | ($4,334.5) | | **Net Loss Attributable to Valaris** | ($33.0) | ($4,467.0) | ($4,855.5) | | **Total Assets (at period end)** | $2,609.2 | N/A | $12,873.2 | | **Total Liabilities (at period end)** | $1,548.4 | N/A | $8,502.9 (incl. subject to compromise) | [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=179&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This item is not applicable to the company - Not applicable[811](index=811&type=chunk) [Controls and Procedures](index=179&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures are effective as of year-end 2021 - Management concluded that the company's disclosure controls and procedures were **effective** as of the end of the period covered by the report[812](index=812&type=chunk) - There were **no material changes** in internal control over financial reporting during the quarter ended December 31, 2021[814](index=814&type=chunk) [Other Information](index=179&type=section&id=Item%209B.%20Other%20Information) This item is not applicable to the company - Not applicable[815](index=815&type=chunk) PART III This section incorporates by reference information from the company's forthcoming definitive Proxy Statement [Directors, Executive Officers and Corporate Governance](index=180&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors and governance is incorporated by reference from the Proxy Statement, while officer information is in Part I - Information required by this item is incorporated by reference from the company's Proxy Statement to be filed within 120 days of the fiscal year-end[817](index=817&type=chunk) - Information regarding executive officers is located in Part I of this Annual Report[818](index=818&type=chunk) [Executive Compensation](index=180&type=section&id=Item%2011.%20Executive%20Compensation) Information concerning executive compensation is incorporated by reference from the company's Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[821](index=821&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters](index=181&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Shareholder%20Matters) This section provides details on equity compensation plans not approved by security holders Equity Compensation Plan Information (as of Dec 31, 2021) | Plan Category | Securities to be Issued Upon Exercise (a) | Securities Remaining Available for Future Issuance (c) | | :--- | :--- | :--- | | Equity compensation plans not approved by security holders | 1,467,438 | 7,493,135 | - Additional information required by this item is incorporated by reference from the company's Proxy Statement[823](index=823&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=181&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related transactions and director independence is incorporated by reference from the Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[824](index=824&type=chunk) [Principal Accounting Fees and Services](index=181&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information concerning principal accounting fees and services is incorporated by reference from the Proxy Statement - Information required by this item is incorporated by reference from the company's Proxy Statement[825](index=825&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=182&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K - This item lists all financial statements and exhibits filed with the Form 10-K[828](index=828&type=chunk) - Key exhibits filed include the Fourth Amended Joint Chapter 11 Plan of Reorganization (2.1), Bye-laws of Valaris Limited (3.2), Indenture for the First Lien Notes (4.1), and the Warrant Agreement (4.5)[829](index=829&type=chunk) [Form 10-K Summary](index=186&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has not provided a summary for its Form 10-K - None[834](index=834&type=chunk)

Financial Data and Key Metrics Changes - Adjusted EBITDA for Q3 2021 was $30 million, up from $17 million in the combined prior quarter, while adjusted EBITDAR increased to $49 million from $41 million [63] - Revenues for Q3 2021 reached $327 million compared to $293 million in the combined prior quarter, with revenues excluding reimbursable items increasing to $293 million from $261 million [63][64] - Contract drilling expense for Q3 2021 was $274 million, up from $254 million in the combined prior quarter [65] Business Line Data and Key Metrics Changes - The average day rate within the floater backlog increased by 25% year-to-date to $235,000 per day, with approximately 75% of the backlog added year-to-date coming from major and large international oil companies [28] - Valaris secured long-term contracts for four of its seven preservation stacked drillships, enhancing earnings visibility with 8 of 11 drillships currently or future contracted [23][27] Market Data and Key Metrics Changes - Spot Brent crude prices have recovered strongly in 2021, with two-year forward Brent crude prices currently around $70 per barrel, which is viewed as constructive for offshore project demand [13][14] - Demand for floaters is expected to increase at a compound annual growth rate of approximately 6% between 2021 and 2025, driven by exploration and development drilling [14] Company Strategy and Development Direction - The company focuses on maximizing earnings and driving meaningful free cash flow as the market recovers, with a disciplined approach to fleet management and contracting [48][49] - Valaris views ARO Drilling as an important strategic asset, with plans to build 20 jackups over the next decade, backed by long-term contracts with Saudi Aramco [36][39] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in the offshore drilling market, citing increased contract awards and backlog, particularly for the floater fleet [51] - The company anticipates total revenues for Q4 2021 to be in the range of $310 million to $320 million, with a sequential decline primarily driven by the jackup fleet [74] Other Important Information - The company has a strong balance sheet with cash and cash equivalents of $621 million as of September 30, 2021, and only one tranche of debt due in 2028 [94][95] - Valaris has retired 18 rigs since the beginning of last year, representing more than 50% of its fleet since the downturn began [25] Q&A Session Summary Question: Recent reactivations and rate levels - Management highlighted that reactivation costs need to be justified and reimbursed by customers, with the average stacked period for their rigs being less than two years, making reactivations easier [104][105] Question: Future of ARO fleet - Management indicated that ARO is in discussions for lease extensions and expects the fleet to grow as Saudi Aramco increases its rig requirements [112][114] Question: Upgrades needed for idle rigs - It was noted that rigs entering Saudi Arabia typically require significant CapEx upgrades to meet Saudi Aramco's high operational standards [118]

FORM 10-Q Valaris Limited UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to__________ Commission File Number 1-8097 (Exact name of registrant as specified in its charter) (State or other jurisdiction ...

Valaris Ltd (NYSE:VAL) Q2 2021 Earnings Conference Call August 3, 2021 10:00 AM ET Company Participants Darin Gibbins - VP, IR & Treasurer Thomas Burke - President, CEO & Director Jonathan Baksht - EVP & CFO Tim Richardson - Director, IR Conference Call Participants Connor Lynagh - Morgan Stanley Gregory Lewis - BTIG Fredrik Stene - Clarksons Platou Operator Good day, everyone, and welcome to Valaris' Second Quarter 2021 Financial Results Conference Call. [Operator Instructions]. Please note, this event is ...

PART I FINANCIAL INFORMATION [Financial Statements](index=7&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) Valaris Limited's unaudited condensed consolidated financial statements reflect fresh start accounting post-Chapter 11 emergence on April 30, 2021, presenting non-comparable Predecessor and Successor data [Condensed Consolidated Statements of Operations](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The statements report a net loss of **$6.2 million** for the Successor period and significant Predecessor losses, including **$3.56 billion** primarily due to reorganization items Condensed Consolidated Statements of Operations (In millions) | | Successor | Predecessor | Predecessor | | :--- | :--- | :--- | :--- | | | **Two Months Ended June 30, 2021** | **One Month Ended April 30, 2021** | **Three Months Ended June 30, 2020** | | **OPERATING REVENUES** | $202.8 | $90.3 | $388.8 | | **OPERATING INCOME (LOSS)** | $9.6 | $(38.0) | $(1,019.2) | | Reorganization items, net | $(4.1) | $(3,532.4) | — | | **NET LOSS** | $(4.1) | $(3,556.2) | $(1,108.8) | | **NET LOSS ATTRIBUTABLE TO VALARIS** | $(6.2) | $(3,557.0) | $(1,107.4) | | **LOSS PER SHARE - BASIC AND DILUTED** | $(0.08) | $(17.81) | $(5.58) | [Condensed Consolidated Balance Sheet](index=12&type=section&id=Condensed%20Consolidated%20Balance%20Sheet) The Successor balance sheet as of June 30, 2021, reflects total assets of **$2.6 billion**, significantly reduced from the Predecessor's **$12.9 billion** due to fresh start accounting and a new capital structure Condensed Consolidated Balance Sheets (In millions) | | Successor (June 30, 2021) | Predecessor (December 31, 2020) | | :--- | :--- | :--- | | **Total current assets** | $1,217.7 | $1,172.9 | | **Property and equipment, net** | $897.8 | $10,960.5 | | **Total assets** | **$2,601.7** | **$12,873.2** | | **Total current liabilities** | $396.6 | $426.8 | | **Long-term debt** | $544.8 | — | | **Liabilities subject to compromise** | — | $7,313.7 | | **Total liabilities** | $1,511.2 | $8,502.9 | | **Total equity** | $1,090.5 | $4,370.3 | [Condensed Consolidated Statements of Cash Flows](index=13&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The statements show net cash used in operating activities for both Successor (**$25.9 million**) and Predecessor (**$39.8 million**) periods, with the Predecessor period also reflecting a **$388.7 million** financing cash inflow Condensed Consolidated Statements of Cash Flows (In millions) | | **Successor**<br>Two Months Ended<br>June 30, 2021 | **Predecessor**<br>Four Months Ended<br>April 30, 2021 | **Predecessor**<br>Six Months Ended<br>June 30, 2020 | | :--- | :--- | :--- | :--- | | **Net cash used in operating activities** | $(25.9) | $(39.8) | $(381.1) | | **Net cash provided by (used in) investing activities** | $(7.9) | $21.4 | $(53.3) | | **Net cash provided by financing activities** | — | $388.7 | $539.4 | [Note 2 - Chapter 11 Proceedings](index=16&type=section&id=Note%202%20-%20Chapter%2011%20Proceedings) Valaris emerged from Chapter 11 on April 30, 2021, eliminating **$7.1 billion** in debt, injecting **$520 million** in new capital, and recording a **$3.58 billion** net reorganization expense - Emerged from Chapter 11 on April 30, 2021, eliminating **$7.1 billion** in debt and securing a **$520 million** capital injection through new First Lien Notes[45](index=45&type=chunk) - Legacy Valaris Class A ordinary shares were cancelled, and former holders received warrants to purchase new Common Shares[45](index=45&type=chunk)[47](index=47&type=chunk) Reorganization Items, Net (Four Months Ended April 30, 2021 - Predecessor, in millions) | Item | Amount | | :--- | :--- | | Professional fees | $93.4 | | Gain on settlement of liabilities subject to compromise | $(6,139.0) | | Loss on fresh start adjustments | $9,194.6 | | **Total reorganization items, net** | **$3,584.6** | [Note 3 - Fresh Start Accounting](index=19&type=section&id=Note%203%20-%20Fresh%20Start%20Accounting) Valaris adopted fresh start accounting upon emergence, revaluing assets and liabilities at fair value, resulting in a significant write-down of Property and Equipment and making financial statements non-comparable - The company adopted fresh start accounting upon emergence, as existing shareholders received less than **50%** of the new shares and the reorganization value was less than post-petition liabilities and claims[52](index=52&type=chunk) Reorganization & Enterprise Value (April 30, 2021, in millions) | Metric | Value | | :--- | :--- | | Enterprise Value | $1,860.0 | | Plus: Cash and cash equivalents | $607.6 | | Reorganization value of Successor assets | $2,595.6 | - Fresh start adjustments included a significant write-down of Property and Equipment by approximately **$8.7 billion** to reflect its fair value[68](index=68&type=chunk)[90](index=90&type=chunk) [Note 5 - Equity Method Investment in ARO](index=33&type=section&id=Note%205%20-%20Equity%20Method%20Investment%20in%20ARO) Valaris holds a **50%** equity method investment in ARO, a joint venture with Saudi Aramco, with a maximum exposure to loss of **$302.1 million** and potential capital contributions up to **$1.25 billion** for newbuild rigs - Valaris is a **50%** partner in the ARO joint venture with Saudi Aramco, which owns **7** jackup rigs and leases **9** rigs from Valaris[126](index=126&type=chunk) - ARO plans to purchase **20** newbuild jackup rigs over **10** years; if ARO cannot self-finance, Valaris may be required to contribute up to an aggregate of **$1.25 billion**[128](index=128&type=chunk)[206](index=206&type=chunk) Valaris's Maximum Exposure to Loss from ARO (in millions) | | June 30, 2021 (Successor) | December 31, 2020 (Predecessor) | | :--- | :--- | :--- | | Total assets related to ARO | $340.7 | $585.2 | | Less: total liabilities related to ARO | $38.6 | $30.9 | | **Maximum exposure to loss** | **$302.1** | **$554.3** | [Note 7 - Property and Equipment](index=39&type=section&id=Note%207%20-%20Property%20and%20Equipment) Property and equipment, net, significantly decreased to **$897.8 million** for the Successor due to fresh start accounting, following Predecessor impairment losses of **$756.5 million** in 2021 and **$3.6 billion** in 2020 - The Predecessor recorded a pre-tax, non-cash impairment loss of **$756.5 million** for certain floaters during the four months ended April 30, 2021[152](index=152&type=chunk)[155](index=155&type=chunk) - In 2020, the Predecessor recorded impairment losses totaling **$3.6 billion** for the six months ended June 30, 2020, due to the decline in oil prices and the COVID-19 pandemic's impact on demand[153](index=153&type=chunk)[158](index=158&type=chunk)[159](index=159&type=chunk) [Note 11 - Debt](index=44&type=section&id=Note%2011%20-%20Debt) Valaris's capital structure was overhauled post-bankruptcy, cancelling all Predecessor debt and issuing **$550 million** in new First Lien Notes due 2028 with flexible interest payment options - On April 30, 2021, the company issued **$550 million** in aggregate principal of new First Lien Notes due 2028[179](index=179&type=chunk) - The First Lien Notes offer optionality for interest payments: **8.25%** in cash, **10.25%** as **50/50** cash/PIK, or **12%** entirely PIK[182](index=182&type=chunk) - All of the Predecessor's senior notes and its Revolving Credit Facility were cancelled as part of the reorganization plan[188](index=188&type=chunk) [Note 15 - Segment Information](index=51&type=section&id=Note%2015%20-%20Segment%20Information) The company operates through Floaters, Jackups, ARO, and Other segments, with Jackups contributing **$25.2 million** in operating income and Floaters reporting a **$3.4 million** operating loss for the Successor period Segment Operating Income (Loss) - Two Months Ended June 30, 2021 (Successor, in millions) | Segment | Revenues | Operating Income (Loss) | | :--- | :--- | :--- | | Floaters | $49.7 | $(3.4) | | Jackups | $128.5 | $25.2 | | ARO (Full Results) | $84.0 | $8.3 | | Other | $24.6 | $14.6 | | **Consolidated Operating Income** | **$202.8** | **$9.6** | - The company's operating segments are Floaters (drillships and semisubmersibles), Jackups, ARO (**50/50** joint venture), and Other (management services and ARO arrangements)[209](index=209&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=59&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This MD&A details the company's post-Chapter 11 emergence, fresh start accounting impact, improving offshore drilling market, increased contract backlog to **$2.2 billion**, and combined financial results reflecting decreased revenues and expenses [Executive Summary and Business Environment](index=59&type=section&id=Executive%20Summary%20and%20Business%20Environment) Valaris emerged from Chapter 11 on April 30, 2021, eliminating **$7.1 billion** in debt, with the offshore drilling market showing improvement and contract backlog increasing to **$2.2 billion** - Emerged from Chapter 11 on April 30, 2021, eliminating **$7.1 billion** of debt and obtaining a **$520.0 million** capital injection[232](index=232&type=chunk) - Contract backlog increased to **$2.2 billion** as of August 2, 2021, up from **$1.0 billion** at December 31, 2020; ARO backlog increased to **$953.2 million** from **$347.5 million** over the same period[243](index=243&type=chunk)[244](index=244&type=chunk) - The constructive oil price environment in 2021 has led to an improvement in contracting and tendering activity compared to 2020, particularly for drillships[240](index=240&type=chunk) [Results of Operations](index=63&type=section&id=Results%20of%20Operations) Combined results for Q2 2021 show revenues of **$293.1 million**, a **25%** decrease year-over-year, and contract drilling expense down **31%** to **$254.3 million**, alongside a **$3.5 billion** reorganization expense Combined Results of Operations (Non-GAAP, in millions) | | Three Months Ended June 30, 2021 (Combined) | Three Months Ended June 30, 2020 (Predecessor) | | :--- | :--- | :--- | | Revenues | $293.1 | $388.8 | | Contract drilling expense | $254.3 | $370.7 | | Loss on impairment | — | $838.0 | | Operating income (loss) | $(28.4) | $(1,019.2) | | Other income (expense), net | $(3,532.3) | $(105.4) | | **Net loss attributable to Valaris** | **$(3,563.2)** | **$(1,107.4)** | - Combined revenues for Q2 2021 decreased by **25%** year-over-year, primarily due to fewer days under contract, prior-year termination fees, and asset sales[260](index=260&type=chunk) - Combined contract drilling expense for Q2 2021 decreased by **31%** year-over-year, driven by lower costs on idle rigs and rigs sold[262](index=262&type=chunk) [Liquidity and Capital Resources](index=75&type=section&id=Liquidity%20and%20Capital%20Resources) Valaris's post-emergence liquidity is **$608.8 million** in cash and cash equivalents, with **$550 million** in First Lien Notes, and potential capital commitments including up to **$1.25 billion** for ARO's newbuild program Liquidity Position (in millions) | | June 30, 2021 (Successor) | December 31, 2020 (Predecessor) | | :--- | :--- | :--- | | Cash and cash equivalents | $608.8 | $325.8 | | Available DIP Facility | — | $500.0 | | **Total liquidity** | **$608.8** | **$825.8** | - The company has an option to take delivery of two newbuild drillships, VALARIS DS-13 and DS-14, on or before December 31, 2023, with no further obligation if it elects not to purchase them[330](index=330&type=chunk) - Valaris has a potential obligation to make capital contributions to the ARO joint venture to fund its **20-rig** newbuild program, up to a maximum aggregate of **$1.25 billion**[341](index=341&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=83&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) This section is marked as not applicable for the current reporting period - The company has indicated that this section is not applicable for this reporting period[359](index=359&type=chunk) [Controls and Procedures](index=83&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with new controls established for fresh start accounting post-Chapter 11 emergence - Management concluded that disclosure controls and procedures were effective as of June 30, 2021[362](index=362&type=chunk) - New controls were established during the quarter to oversee the application of fresh start accounting following the emergence from bankruptcy[363](index=363&type=chunk) PART II OTHER INFORMATION [Legal Proceedings](index=85&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section details the dismissal of the UMB Bank lawsuit and a shareholder class action, while noting a **$0.5 million** accrued liability for environmental spills in Brazil - The UMB Bank lawsuit concerning fraudulent transfer allegations was dismissed with prejudice after the company's Chapter 11 plan was consummated[366](index=366&type=chunk) - A shareholder class action lawsuit was voluntarily dismissed with prejudice by the lead plaintiff in July 2021[367](index=367&type=chunk) - The company is subject to notices of assessment for environmental spills in Brazil and has a **$0.5 million** liability accrued for these matters as of June 30, 2021[368](index=368&type=chunk) [Risk Factors](index=86&type=section&id=ITEM%201A.%20RISK%20FACTORS) Key risks post-bankruptcy emergence include adverse effects on business relationships, non-comparability of financial data, potential share dilution, ability to service new debt, and challenges of enforcing judgments against a Bermuda-based company - Risk that the recent emergence from bankruptcy may adversely affect relationships with vendors, suppliers, and customers[372](index=372&type=chunk) - Historical financial information is not indicative of future performance due to the significant impact of fresh start accounting[374](index=374&type=chunk) - Shareholders face potential dilution from **5.6 million** outstanding warrants and up to **9.0 million** shares reserved for the new Management Incentive Plan[375](index=375&type=chunk) - The company's contract backlog of **$2.2 billion** is not guaranteed and may not be fully realized due to risks of early termination, rig downtime, or contract renegotiations[384](index=384&type=chunk)[385](index=385&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=90&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) During Q2 2021, the company repurchased a small number of equity securities from employees to settle tax withholding obligations related to vested share awards, prior to legacy share cancellation Issuer Repurchases of Equity Securities | Period | Total Number of Securities Repurchased | Average Price Paid per Security | | :--- | :--- | :--- | | April 1 - April 30 | 1,057 | $0.07 | | May 1 - May 31 | — | $— | | June 1 - June 30 | — | $— | | **Total** | **1,057** | **$0.07** | - Repurchases in April 2021 were from employees to cover tax withholding on vesting share awards, prior to the cancellation of all legacy shares[390](index=390&type=chunk) [Exhibits](index=90&type=section&id=ITEM%206.%20EXHIBITS) This section lists exhibits filed with the Form 10-Q, including foundational documents for the reorganized company, such as new Bye-laws, First Lien Notes Indenture, Warrant Agreement, and the 2021 Management Incentive Plan - Filed exhibits include foundational documents for the reorganized company, such as the new Bye-laws (**3.2**), First Lien Notes Indenture (**4.1**), Warrant Agreement (**10.1**), and the **2021** Management Incentive Plan (**10.4**)[390](index=390&type=chunk)[391](index=391&type=chunk)